A week or so ago, I read an article about the Pirelli tyre maker being purchased by the Chinese – and the media were all doom and gloom about Eastern money taking over Western assets. So let’s look at both companies and the deal itself.
Lets start with Pirelli – if you are a car appreciator or race fan then you will definitely know who Pirelli are. Both my vehicles come fitted as standard with Pirelli tyres as they come from Italian factories and the Italians are patriotic and look after their own. Pirelli was formed in 1872 by Giovanni Pirelli to make rubber products – rubber was a fairly new technology in those days! They were one of the first to make bicycle tyres and they developed the radial tyre in the 70s for Lancia because cross ply tyres couldn’t cope with the power of the Stratos rally car. They are one of the top 5 tyre manufacturers in the world and have many tyre plants across the globe and sell almost everywhere!
What about ChemChina? The China National Chemical Corporation (alias ChemChina) was only founded in 2004 through a re-organisation of the companies owned by the Ministry of the Chemical Industry, so in effect it is a state-owned entity. As you can imagine from its name, it specialises in chemicals, petroleum products and some rubber technologies, so the deal with Pirelli is a good fit.
We need to look first at the structure of Pirelli’s ownership. The company, still based in Milan, has many shareholders. The biggest is Camfin S.p.A with 26% and there is a strong connection between Pirelli and Camfin. Marco Tronchetti Provera was an executive of Pirelli (having married into the Pirelli family) prior to the stake being bought by Camfin and he became the Chairman of both Pirelli and Camfin. Late in 2013, he dropped the Camfin Chairman role to concentrate on several other executive positions including the Pirelli Chairman and CEO roles. In effect, 74% of Pirelli’s ownership is spread across a wide number of investors despite the media suggesting that Camfin is the main shareholder – it certainly is the largest single shareholder, however it is not the main one.
Camfin was founded in 1915 as a procurement company. By the 50s it was managed by Silvio Tronchetti Provera and in 1965 he became Chairman of the company. During the 80s, his family took full control and turned it into a finance house. This is how Marco became active in the family company.
Now the deal structure. Camfin has sold it’s 26% stake in Pirelli to ChemChina through its wholly owned entity China National Tire & Rubber Company. This sale will then be followed by a full bid for the rest of the 74% of Pirelli, this appears to be mandatory (probably due to Italian law) however it is not a guaranteed sale. This second bid is by a Chinese Government controlled entity partly owned and funded by Camfin(!), two Italian Banks (UniCredit and Intesa Sanpaolo) and Rosneft, a Russian Government owned and controlled oil company.
Interestingly, in 2013, Camfin released a statement to say that a portion of its stake in Pirelli would not be sold to honour the Pirelli Shareholder Agreement, however it seems the whole stake was up for grabs!
The whole deal seems to be a sloshing around of money. Camfin sells its stake in Pirelli and then invests in the company via ChemChina who plans to strip out the non profitable pieces and merge them into their own subsidiaries. Then ChemChina will take Pirelli private, presumably giving Camfin and others another healthy profit.
The money offered for the company was above the trading price at the time of the initial announcement so the other investors clearly will take note of the possible profit to be had through selling their stakes.
Pirelli will still make great tyres and I hope will retain it’s Italian style – most media outlets were concerned about the future of their annual calendars – they could be against the culture of the new parent!